What You Never Knew About Repeat Customers (and What to Do Now)

A user who buys from your site once is a first-time customer. When this first-time customer comes to your site for a second time and makes a purchase, she becomes a returning customer. And if she comes back over and over again to buy from you, she is termed a repeat customer – the bee’s knees of all customers!

Many retailers, startups, and service providers still seem to need convincing on the value of a repeat customer and pour most of their resources into new client acquisition. If you’re one of them and “A bird in the hand is worth two in the bush” doesn’t seem to ring true to you, here’s a humble attempt (backed by data and research) to sell you on the idea.

Repeat Customers Spend More Than First-Time Customers

The fact that repeat customers have bought more than once from your store probably puts them at a higher lifetime sales and revenue number than a brand new customer who’s just bought once from you.

Bain & Co. studied the online shopping habits of 522 users and found that in the apparel category, a given shopper’s fifth purchase was 40 percent larger than his or her first purchase, and the 10th purchase was a whopping 80 percent larger in value than his or her first one.

Research by Adobe shows that average revenue per visit increases exponentially with each repeat visit, and repeat customers already account for significant chunks of revenue for online businesses worldwide.

· 41 percent of total online revenue in the U.S. (even though only 8 percent of U.S. customers are repeat customers)

· 26 percent of total online revenue in Europe

· 16 percent of total online revenue in the U.K.

Repeat Customers Are Less Price Sensitive

Most of us assume that all online shoppers are typically bargain hunters and will switch services for the teeny-tiniest drop in prices. While this does remain true in the case of first-time shoppers, once a customer has had a few good experiences shopping with you, price stops being such a big issue.

To test this statement, John Dawes from the University of South Australia conducted a study among long-tenured and short-tenured customers of an insurance company to see how they responded to pricing changes (in their premium amounts in this case). Dawes found that customers from the long-tenure group (i.e., customers who have been with the company for a long period of time) were half as sensitive to a change in price as compared to a newer customer.

This is a very important characteristic that allows you to make pricing decisions based on the length of your relationship with your customers.

Repeat Customers Are Your Most Staunch Brand Advocates

We all like to be regarded as “Walking Wikipedias” by our friends and family. It’s basic human psychology. Respect from peers makes us feel good. When we stumble upon something that we like, we tend to share it with our friends to gain their approval – a result of this behavior is the social media phenomenon that has engulfed the planet over the last decade.

Once customers have used your services a few times and had no problems with it, the likelihood of them spreading a good word about your business goes up exponentially. Without any effort from your end, a satisfied repeat customer will happily tell their social circle about how wonderful your product/service is and how they had a great experience with you. Certain industries like technology and restaurants enjoy higher levels of advocacy than others; but in general, having a customer “market” your brand for you free of cost is the most utopian scenario for any business owner.

Repeat Customers Lead to Lower Marketing Spends

This might seem a little counterintuitive to you. Here I’m telling you why you need to focus your marketing efforts on existing customers, while in the same breath I’m telling you that repeat customers reduce your marketing spend.

Well, it’s simple. Once a customer has shopped with you a few times, that person requires a lot less convincing to come back to your store and shop again. The award-winning textbook Marketing Metrics says that the probability of making a repeat customer buy a product are between 60-70 percent, whereas the chances a new customer will buy your product range between 5-20 percent.

Boston Consulting Group carried out a study where it found that the cost of marketing to existing customers is about $7 whereas the marketing cost per new customer averages at around $34.

Less convincing required = less marketing expenditure.

Now That You Know...

So hopefully you’ve abandoned your bush-chase and are considering marinating the bird in hand. Here are a few tangible, sales-focused ideas on how to keep the joy of retention going and customers coming back.

1. Know your customers. Be obsessive about data. Collect every actionable data point with respect to the transactional and behavioral aspects of your customers, mine data submitted by customers on forms, and ask them to update their profiles to give you a better idea of who your customer is.

Use readily available CRM tools to analyze the data and identify patterns from it, and take relevant action to keep the customer sticky. There are advanced e-commerce tools (such as Shopify) available now that help integrate your CRM process with your point of sale software for synchronized online and offline operations.

2. Make someone accountable for retention. Most organizations have teams and clear responsibility flows for the key functions that keep the business going. Now that we recognize and acknowledge that retaining customers is important and a full-time job, get a team or at least a dedicated staff member to manage customer retention for your business, full-time. This will do three things:

· It will create a sense of accountability in the team/person and they will take customer retention seriously.

· It will force the organization to set aside a respectable budget for customer retention.

· It will ensure your repeat customers get the pampering they deserve with someone working ‘round the clock on keeping these valuable folks coming back to you.

3. Set up a loyalty program that rewards repeat purchases. Having a dedicated loyalty program is like having a readymade market for your future sales. It could be in the form of reward points that can be exchanged for future purchases, it could be discounts on future purchases based on past purchase activity, or it could be tangible things like free products bundled with a paid purchase.

Loyal customers do not just buy more from you; they buy less from your competitors. In a study by Zendesk, 54 percent of customers said they would increase the amount of business they do with a company in return for loyalty rewards. Forty-six percent claimed to have already done that.

The airline and credit card industries have purified the concept of building successful loyalty programs into a fine art.

4. Let repeat customers be the first to know. Whenever you come up with a new product, event, or distribution channel, make sure you inform your repeat customers before the launch. Prep them to spend on the upcoming event and you have a ready sales funnel waiting for you. Offline retailers do a great job of this with exclusive preview sales for customers who are members of their loyalty programs.

5. Create referral schemes. We spoke earlier about how people enjoy being perceived as disseminators of valuable information among their peers. A referral program feeds into this need for people to be seen as offering value. The Zendesk study mentioned above also substantiates this fact – 78 percent of loyal customers spread the word about their favorite brand and influence others into trying it, too.

When a repeat customer refers a friend to buy from you, reward both parties – the customer who did the referring as well as his or her friends who bought from you via the referral, a la Dropbox.

6. Explore subscription programs if it suits your line of business. The benefit of subscription commerce is that you only have to spend once to lock in the customer for a set of repeat purchases. The amount spent on customer acquisition is well covered in the price, and the model ensures that the customer does not lapse before a pre-defined period of time.

JustFab and Dollar Shave Club are great examples of successful subscription e-commerce models.

Over to You

With so much data available in support of customer retention, you would think companies would be falling all over each other to pamper existing customers. But in reality, this is how global marketing spends are currently skewed:

Source: McKinsey

Just about 12 percent of marketing budgets are dedicated to customer retention. If repeat customers are such an important part of your business, shouldn’t you focus a lot more on how to keep them happy and shopping with you for as long as possible?